Analyst Picks and Pans

Analyst Picks and Pans: BlackRock, H.B. Fuller, hhgregg

September 23, 2009

BlackRock (BLK)

Deutsche Bank upgrades to buy from hold

Deutsche Bank analyst Michael Carrier upgraded his view on BlackRock Inc. on Sept. 23, saying the investment manager is benefiting broadly from improving markets and operations. He also increased his price target to $230 from $180.

Carrier also raised his 2010 earnings estimate to $11.25 per share from $9.00 per share.

In a research note, Carrier said a surge in stock markets since March lows, improving investment flows and positive operating leverage are all near-term trends that are helping BlackRock.

BlackRock's recent acquisition of Barclays asset-management arm, Barclays Global Investors, also provides the company with potential growth, Carrier said. About $200 million in cost synergies should also be realized in 2010 because of the acquisition, which will help margins, he said.

The firm's strong cash flow should also provide opportunities for it to pay down debt, increase its dividend, continue to expand or repurchase stock, Carrier wrote in the note.

H.B. Fuller (FUL)

KeyBanc Capital Markets maintains hold
Deutsche Bank maintains hold

H.B. Fuller Co.'s significant third-quarter profit surprise drew praise from analysts and prompted one to boost his earnings outlook for the company.

H.B. Fuller, which makes adhesives, sealants, paints and other specialty chemicals, said after the close of trading Sept. 22 that its fiscal third-quarter profit jumped 63%, helped by a gain from the settlement of a lawsuit.

Net income rose to 72 cents per share, compared with 44 cents per share during the same period a year earlier. Excluding the settlement, net income would have been 48 cents, which still exceeded analysts' expectations of 36 cents per share.

Revenue dropped 13% to $315.3 million from $362 million.

The company said weak end-market demand continued throughout the third quarter, but that the year-over-year decline in volume -- down 12.4% -- was less than the decline in the second quarter -- 15.1%.

Sison said he believes the company can maintain this level of profitability for the next few quarters and raised his 2009 and 2010 profit estimates to $1.45 per shares and $1.70 per share, up from $1.20 per share and $1.40 per share, respectively.

Ongoing soft demand for televisions and appliances prompted Janney Montgomery Scott analyst David Strasser to downgrade hhgregg Inc. on Sept. 23. Strasser said television unit sales have waned since the digital conversion switch in June. The Indianapolis-based electronics retailer is also facing tougher competition in the appliance segment, as rival Sears Holdings (SHLD) has boosted its promotional activity in an effort to hold onto market share while peer Best Buy (BBY) actively pursues market share growth as well, he added.

Strasser said hhgregg has concentrated more on the personal computer category -- particularly netbooks and notebooks -- which will drive sales during the second half of the year. But the low-margin segment will likely only provide a modest boost to the bottom line, he explained.